- 34 -
intent.13 E.g., Suzy’s Zoo v. Commissioner, supra at 879-880
(taxpayer was “producer” of greeting cards manufactured by third
party contractors); Von-Lusk v. Commissioner, 104 T.C. 207, 214-
216 (1995) (taxpayer’s costs of meetings with governmental
officials, obtaining building permits, and drafting architectural
plans were development costs amounting to “production”). Whether
an expenditure is deductible or must be capitalized is a question
of fact. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 86 (1992).
Section 263A14 provides that a taxpayer’s direct and
indirect costs (including taxes) of producing real property for
use in a trade or business or activity conducted for profit must
be capitalized. Sec. 263A(a)(1)(B) and (2), (b)(2) and (c)(1);
sec. 1.263A-1T(a)(6)(i) and (b)(1) and (2)(i), (ii), and (iii),
Temporary Income Tax Regs., 52 Fed. Reg. 10061, 10062 (Mar. 30,
13In general, sec. 263A(g)(1) defines the term “produce” to
include “construct, build, install, manufacture, develop, or
improve.”
14Temporary regulations under sec. 263A were issued in 1987.
Final regulations under sec. 263A were issued in 1993 and 1994.
These final regulations generally were made effective for costs
incurred in taxable years beginning after Dec. 31, 1993, and
interest incurred in taxable years beginning after Dec. 31, 1994.
Secs. 1.263A-1(a)(2)(i), 1.263A-15(a)(1), Income Tax Regs. For
costs or interest incurred in taxable years to which the final
regulations are not applicable, taxpayers must take reasonable
positions on their returns in applying section 263A. A
“reasonable position” is a position consistent with the temporary
regulations, revenue rulings, revenue procedures, notices, and
announcements concerning sec. 263A applicable in taxable years
beginning before the effective date of the final regulations.
Secs. 1.263A-1(a)(2)(ii), 1.263A-15(a)(2), Income Tax Regs.
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